31 May 2011

In his recent decision in the matter of Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh, Justice G. S. Singhvi of the Supreme Court culled out the principles of administrative law and constitutional governance to declare that the State could not act in an arbitrary manner to grant favourable land allotments without following principles of public policy so as to grant equal opportunity to all the citizens.

Called upon to decide the question "Whether the decision of the Government of Madhya Pradesh to allot 20 acres land comprised in Khasra Nos. 82/1 and 83 of village Bawadiya Kalan, Tehsil Huzur, District Bhopal to late Shri Kushabhau Thakre Memorial Trust without inviting other similarly situated organisations/institutions to participate in the process of allotment is contrary to Article 14 of the Constitution", the Apex Court declared that it found the allotment a "result of an exercise undertaken in gross violation of Article 14 of the Constitution and is an act of favoritism and nepotism".

The Court discussed the legal position, which is now the law of the land, as under;

14. We shall now consider whether the State Government could allot 20 acres of land to respondent No.5 without issuing an advertisement or adopting a procedure consistent with the doctrine of equality so as to enable other similar organizations/institutions to participate in the process of allotment.

15. The concept of ‘State’ has changed in recent years. In all democratic dispensations the State has assumed the role of a regulator and provider of different kinds of services and benefits to the people like jobs, contracts, licences, plots of land, mineral rights and social security benefits. In his work “The Modern State” MacIver (1964 Paperback Edition) advocated that the State should be viewed mainly as a service corporation. He highlighted difference in perception about the theory of State in the following words:

“To some people State is essentially a class-structure, “an organization of one class dominating over the other classes”; others regard it as an organisation that transcends all classes and stands for the whole community. They regard it as a powersystem. Some view it entirely as a legal structure, either in the old Austinian sense which made it a relationship of governors and governed, or, in the language of modern jurisprudence, as a community “organised for action under legal rules”. Some regard it as no more than a mutual insurance society, others as the very texture of all our life. Some class the State as a great “corporation” and others consider it as indistinguishable from society itself.”

16. When the Constitution was adopted, people of India resolved to constitute India into a Sovereign Democratic Republic. The words ‘Socialist’ and ‘Secular’ were added by the Constitution (Forty-second Amendment) Act, 1976 and also to secure to all its citizens Justice - social, economic and political, Liberty of thought, expression, belief, faith and worship; Equality of status and/or opportunity and to promote among them all Fraternity assuring the dignity of the individual and the unity and integrity of the Nation. The expression ‘unity of the Nation’ was also added by the Constitution (Forty-second Amendment) Act, 1976. The idea of welfare State is ingrained in the Preamble of the Constitution. Part III of the Constitution enumerates fundamental rights, many of which are akin to the basic rights of every human being. This part also contains various positive and negative mandates which are necessary for ensuring protection of the Fundamental Rights and making them real and meaningful. Part IV contains ‘Directive Principles of State Policy’ which are fundamental in the governance of the country and it is the duty of the State to apply these principles in making laws. Article 39 specifies certain principles of policy which are required to be followed by the State. Clause (b) thereof provides that the State shall, in particular, direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good. Parliament and Legislatures of the States have enacted several laws and the governments have, from time to time, framed policies so that the national wealth and natural resources are equitably distributed among all sections of people so that have-nots of the society can aspire to compete with haves.

17. The role of the Government as provider of services and benefits to the people was noticed in R.D. Shetty v. International Airport Authority of India (1979) 3 SCC 489 in the following words:

“Today the Government in a welfare State, is the regulator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licences, quotas, mineral rights, etc. The Government pours forth wealth, money, benefits, services, contracts, quotas and licences. The valuables dispensed by Government take many forms, but they all share one characteristic. They are steadily taking the place of traditional forms of wealth. These valuables which derive from relationships to Government are of many kinds. They comprise social security benefits, cash grants for political sufferers and the whole scheme of State and local welfare. Then again, thousands of people are employed in the State and the Central Governments and local authorities. Licences are required before one can engage in many kinds of businesses or work. The power of giving licences means power to withhold them and this gives control to the Government or to the agents of Government on the lives of many people. Many individuals and many more businesses enjoy largesse in the form of Government contracts. These contracts often resemble subsidies. It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with Government. Government owns and controls hundreds of acres of public land valuable for mining and other purposes. These resources are available for utilisation by private corporations and individuals by way of lease or licence. All these mean growth in the Government largesse and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges……….”

18. For achieving the goals of Justice and Equality set out in the Preamble, the State and its agencies/instrumentalities have to function through political entities and officers/officials at different levels. The laws enacted by Parliament and State Legislatures bestow upon them powers for effective implementation of the laws enacted for creation of an egalitarian society. The exercise of power by political entities and officers/officials for providing different kinds of services and benefits to the people always has an element of discretion, which is required to be used in larger public interest and for public good. In principle, no exception can be taken to the use of discretion by the political functionaries and officers of the State and/or its agencies/instrumentalities provided that this is done in a rational and judicious manner without any discrimination against anyone. In our constitutional structure, no functionary of the State or public authority has an absolute or unfettered discretion. The very idea of unfettered discretion is totally incompatible with the doctrine of equality enshrined in the Constitution and is an antithesis to the concept of rule of law.

19. In his work ‘Administrative Law’ (6th) Edition, Prof. H.W.R. Wade, highlighted distinction between powers of public authorities and those of private persons in the following words:

"... The common theme of all the authorities so far mentioned is that the notion of absolute or unfettered discretion is rejected. Statutory power conferred for public purposes is conferred as it were upon trust, no absolutely - that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended. Although the Crown's lawyers have argued in numerous cases that unrestricted permissive language confers unfettered discretion, the truth is that, in a system based on the rule of law, unfettered governmental discretion is a contradiction in terms."

Prof. Wade went on to say:

"...... The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good. There is nothing paradoxical in the imposition of such legal limits. It would indeed be paradoxical if they were not imposed. Nor is this principle an oddity of British or American law; it is equally prominent in French law. Nor is it a special restriction which fetters only local authorities: it applies no less to ministers of the Crown. Nor is it confined to the sphere of administration: it operates wherever discretion is given for some public purpose, for example where a judge has a discretion to order jury trial. It is only where powers are given for the personal benefit of the person empowered that the discretion is absolute. Plainly this can have no application in public law.

For the same reasons there should in principle be no such thing as unreviewable administrative discretion, which should be just as much a contradiction in terms as unfettered discretion. The question which has to be asked is what is the scope of judicial review, and in a few special cases the scope for the review of discretionary decisions may be minimal. It remains axiomatic that all discretion is capable of abuse, and that legal limits to every power are to be found somewhere."

20. Padfield v. Minister of Agriculture, Fishery and Food (1968) A.C. 997, is an important decision in the area of administrative law. In that case the Minister had refused to appoint a committee to investigate the complaint made by the members of the Milk Marketing Board that majority of the Board had fixed milk prices in a way that was unduly unfavourable to the complainants. The Minister's decision was founded on the reason that it would be politically embarrassing for him if he decided not to implement the committee's decision. While rejecting the theory of absolute discretion, Lord Reid observed:

"Parliament must have conferred the discretion with the intention that it should be used to promote the policy and objects of the Act; the policy and objects of the Act must be determined by construing the Act as a whole and construction is always a matter of law for the court. In a matter of this kind it is not possible to draw a hard and fast line, but if the Minister, by reason of his having misconstrued the Act or for any other reasons, so uses his discretion as to thwart or run counter to the policy and objects of the Act, then our law would be very defective if persons aggrieved were not entitled to the protection of the court."

“The discretion of a statutory body is never unfettered. It is a discretion which is to be exercised according to law. That means at least this: the statutory body must be guided by relevant considerations and not by irrelevantly. It its decision is influenced by extraneous considerations which it ought not to have taken into account, then the decision cannot stand. No matter that the statutory body may have acted in good faith; nevertheless the decision will be set aside. That is established by Padfield v. Minister of Agriculture, Fisheries and Food which is a landmark in modern administrative law."

22. In Laker Airways Ltd. v. Department of Trade 1977 QB 643, Lord Denning discussed prerogative of the Minister to give directions to Civil Aviation Authorities overruling the specific provisions in the statute in the time of war and said:

"Seeing that prerogative is a discretion power to be exercised for the public good, it follows that its exercise can be examined by the Courts just as in other discretionary power which is vested in the executive."

23. This Court has long ago discarded the theory of unfettered discretion. In S.G. Jaisinghani v. Union of India AIR 1967 SC 1427, Ramaswami, J. emphasised that absence of arbitrary power is the foundation of a system governed by rule of law and observed:

"In this context it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law. (See Dicey-"Law of the Constitution" - Tenth Edn., Introduction ex.). 'Law has reached its finest moments', stated Douglas, J. in United States v. Underlick (1951 342 US 98:96 Law Ed 113), "when it has freed man from the unlimited discretion of some ruler..... Where discretion is absolute, man has always suffered'. It is in this sense that the rule of law maybe said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilkes (1770 98 ER 327),'means sound discretion guided by law. It must be governed by rule, not humour it must not be arbitrary, vague and fanciful"

24. In Ramana Dayaram Shetty v. International Airport Authority of India (supra), Bhagwati, J. referred to an article by Prof. Reich “The New Property” which was published in 73 Yale Law Journal. In the article, the learned author said, “that the Government action be based on standard that are not arbitrary or unauthorized.” The learned Judge then quoted with approval the following observations made by Mathew, J. (as he then was) in V. Punnen Thomas v. State of Kerala AIR 1969 Ker. 81 (Full Bench):

"The Government is not and should not be as free as an individual in selecting recipients for its largesses. Whatever its activities, the Government is still the Government and will be subject to the restraints inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal."

Bhagwati, J. also noticed some of the observations made by Ray, C.J. in Eursian Equipments and Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70 who emphasized that when the Government is trading with public the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions and held:

“……….This proposition would hold good in all cases of dealing by the Government with the public, where the interest sought to be protected is a privilege. It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.”

“Where any governmental action fails to satisfy the test of reasonableness and public interest discussed above and is found to be wanting in the quality of reasonableness or lacking in the element of public interest, it would be liable to be struck down as invalid. It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so. Such considerations may be that some directive principle is sought to be advanced or implemented or that the contract or the property is given not with a view to earning revenue but for the purpose of carrying out a welfare scheme for the benefit of a particular group or section of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the contract or the property. We have referred to these considerations only illustratively, for there may be an infinite variety of considerations which may have to be taken into account by the Government in formulating its policies and it is on a total valuation of various considerations which have weighed with the Government in taking a particular action, that the court would have to decide whether the action of the Government is reasonable and in public interest. But one basic principle which must guide the court in arriving at its determination on this question is that there is always a presumption that the governmental action is reasonable and in public interest and it is for the party challenging its validity to show that it is wanting in reasonableness or is not informed with public interest. This burden is a heavy one and it has to be discharged to the satisfaction of the court by proper and adequate material. The court cannot lightly assume that the action taken by the Government is unreasonable or without public interest because, as we said above, there are a large number of policy considerations which must necessarily weigh with the Government in taking action and therefore the court would not strike down governmental action as invalid on this ground, unless it is clearly satisfied that the action is unreasonable or not in public interest. But where it is so satisfied, it would be the plainest duty of the court under the Constitution to invalidate the governmental action. This is one of the most important functions of the court and also one of the most essential for preservation of the rule of law. It is imperative in a democracy governed by the rule of law that governmental action must be kept within the limits of the law and if there is any transgression, the court must be ready to condemn it. It is a matter of historical experience that there is a tendency in every Government to assume more and more powers and since it is not an uncommon phenomenon in some countries that the legislative check is getting diluted, it is left to the court as the only other reviewing authority under the Constitution to be increasingly vigilant to ensure observance with the rule of law and in this task, the court must not flinch or falter. It may be pointed out that this ground of invalidity, namely, that the governmental action is unreasonable or lacking in the quality of public interest, is different from that of mala fides though it may, in a given case, furnish evidence of mala fides.”

26. In Common Cause, A Registered Society v. Union of India (1996) 6 SCC 530 the two Judge Bench considered the legality of discretionary powers exercised by the then Minister of State for Petroleum and Natural Gas in the matter of allotment of petrol pumps and gas agencies. While declaring that allotments made by the Minister were wholly arbitrary, nepotistic and motivated by extraneous considerations the Court said:

“The Government today — in a welfare State — provides large number of benefits to the citizens. It distributes wealth in the form of allotment of plots, houses, petrol pumps, gas agencies, mineral leases, contracts, quotas and licences etc. Government distributes largesses in various forms. A Minister who is the executive head of the department concerned distributes these benefits and largesses. He is elected by the people and is elevated to a position where he holds a trust on behalf of the people. He has to deal with the people’s property in a fair and just manner. He cannot commit breach of the trust reposed in him by the people.”

27. The Court also referred to the reasons recorded in the orders passed by the Minister for award of dealership of petrol pumps and gas agencies and observed:

“24………..While Article 14 permits a reasonable classification having a rational nexus to the objective sought to be achieved, it does not permit the power to pick and choose arbitrarily out of several persons falling in the same category. A transparent and objective criteria/procedure has to be evolved so that the choice among the members belonging to the same class or category is based on reason, fair play and non-arbitrariness. It is essential to lay down as a matter of policy as to how preferences would be assigned between two persons falling in the same category. If there are two eminent sportsmen in distress and only one petrol pump is available, there should be clear, transparent and objective criteria/procedure to indicate who out of the two is to be preferred. Lack of transparency in the system promotes nepotism and arbitrariness. It is absolutely essential that the entire system should be transparent right from the stage of calling for the applications up to the stage of passing the orders of allotment.”

28. In Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 212, the Court unequivocally rejected the argument based on the theory of absolute discretion of the administrative authorities and immunity of their action from judicial review and observed:

".... We have no doubt that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. In our opinion, it would be alien to the Constitutional Scheme to accept the argument of exclusion of Article 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard form contracts between unequals………………………..

Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.

It can no longer be doubted at this point of time that Article of the Constitution of India applies also to matters of governmental policy and if the policy or any action of the Government, even in contractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional. (See Ramana Dayaram Shetty v. The International Airport Authority of India [(1979) 3 SCR 1014: AIR 1979 SC 1628] and Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir [(1980) 3 SCR 1338: AIR 1980 SC 1992], In Col. A.S. Sangwan v. Union of India [(1980 (Supp) SCC 559 : AIR 1981 SC 1545], while the discretion to change the policy in exercise of the executive power, when not trammelledly the statute or rule, was held to be wide, it was emphasised as imperative and implicit in Article 14 of the Constitution that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touch-stone, irrespective of the field of activity of the State, has long been settled. Later decisions of this Court have reinforced the foundation of this tenet and it would be sufficient to refer only to two recent decisions of this Court for this purpose."

29. Similarly, in L.I.C. of India v. Consumer Education & Research Centre (1995) 5 SCC 482, the Court negatived the argument that exercise of executive power of the State was immune from judicial review and observed:

".... Every action of the public authority or the person acting in public interest or its acts give rise to public element, should be guided by public interest. It is the exercise of the public power or action hedged with public element becomes open to challenge. If it is shown that the exercise of the power is arbitrary, unjust and unfair it should be no answer for the State, its instrumentality, public authority or person whose acts have the insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, similicitor, do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by traditional or irrelevant considerations.............

This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immune from satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by any straight jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law filed cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.......

In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest."

30. In New India Public School v. HUDA (1996) 5 SCC 510, this Court approved the judgment of the Division Bench of the Punjab and Haryana High Court in Seven Seas Educational Society v. HUDA AIR 1996 (P&H) 229 : (1996) 113 PLR 17, whereby allotment of land in favour of the appellants was quashed and observed:

".... A reading thereof, in particular Section 15(3) read with Regulation 3(c) does indicate that there are several modes of disposal of the property acquired by HUDA for public purpose. One of the modes of transfer of property as indicated in Subsection (3) of Section 15 read with sub-regulation (c) of Regulation 5 is public auction, allotment or otherwise. When public authority discharges its public duty the word "otherwise" would be construed to be consistent with the public purpose and clear and unequivocal guidelines or rules are necessary and not at the whim and fancy of the public authorities or under their garb or cloak for any extraneous consideration. It would depend upon the nature of the scheme and object of public purpose sought to be achieved. In all cases relevant criterion should be pre-determined by specific rules or regulations and published for the public. Therefore, the public authorities are required to make necessary specific regulations or valid guidelines to exercise their discretionary powers, otherwise, the salutory procedure would be by public auction. The Division Bench, therefore, has rightly pointed out that in the absence of such statutory regulations exercise of discretionary power to allot sites to private institutions or persons was not correct in law."

31. What needs to be emphasized is that the State and/or its agencies/instrumentalities cannot give largesse to any person according to the sweet will and whims of the political entities and/or officers of the State. Every action/decision of the State and/or its agencies/instrumentalities to give largesse or confer benefit must be founded on a sound, transparent, discernible and well defined policy, which shall be made known to the public by publication in the Official Gazette and other recognized modes of publicity and such policy must be implemented/executed by adopting a nondiscriminatory and non-arbitrary method irrespective of the class or category of persons proposed to be benefitted by the policy. The distribution of largesse like allotment of land, grant of quota, permit licence etc. by the State and its agencies/instrumentalities should always be done in a fair and equitable manner and the element of favoritism or nepotism shall not influence the exercise of discretion, if any, conferred upon the particular functionary or officer of the State.

32. We may add that there cannot be any policy, much less, a rational policy of allotting land on the basis of applications made by individuals, bodies, organizations or institutions de hors an invitation or advertisement by the State or its agency/instrumentality. By entertaining applications made by individuals, organisations or institutions for allotment of land or for grant of any other type of largesse the State cannot exclude other eligible persons from lodging competing claim. Any allotment of land or grant of other form of largesse by the State or its agencies/instrumentalities by treating the exercise as a private venture is liable to be treated as arbitrary, discriminatory and an act of favoritism and/or nepotism violating the soul of the equality clause embodied in Article 14 of the Constitution.

33. This, however, does not mean that the State can never allot land to the institutions/organisations engaged in educational, cultural, social or philanthropic activities or are rendering service to the Society except by way of auction. Nevertheless, it is necessary to observe that once a piece of land is earmarked or identified for allotment to institutions/organisations engaged in any such activity, the actual exercise of allotment must be done in a manner consistent with the doctrine of equality. The competent authority should, as a matter of course, issue an advertisement incorporating therein the conditions of eligibility so as to enable all similar situated eligible persons, institutions/organisations to participate in the process of allotment, whether by way of auction or otherwise. In a given case the Government may allot land at a fixed price but in that case also allotment must be preceded by a wholesome exercise consistent with Article 14 of the Constitution.

34. The allotment of land by the State or its agencies/instrumentalities to abody/organization/institution which carry the tag of caste, community or religion is not only contrary to the idea of Secular Democratic Republic but is also fraught with grave danger of dividing the society on caste or communal lines. The allotment of land to such bodies/organisations/institutions on political considerations or by way of favoritism and/or nepotism or with a view to nurture the vote bank for future is constitutionally impermissible.

15 May 2011

In its recently reported decision, Clarity Gold Pvt. Ltd. v. State Bank of India (AIR 2011 Bom 42), the Bombay has declared that "no secured creditor can by seeking assistance of police machinery unilaterally carry out the eviction of the borrower and take over forcible possession of the secured asset". The High Court was dealing with a matter relating to debt recovery wherein it had been alleged that the possession of the assets with the help of the police without orders of the Court. While the High Court did not rule on the factual aspect, it indeed declared that it was no permissible for the creditors to obtain possession through use of force.

The High Court inter alia observed as under;

17 On behalf of the Petitioners, it has been urged that in the present case possession was taken unlawfully from the Petitioners and forcibly without recourse to the provisions of Section 14.

18 On 23 July 2010 the Bank addressed a letter to the Commissioner of Police, Mumbai stating that under Section 13(4), its authorised officer was taking necessary action in an area falling under the jurisdiction of the Malabar Hill Police Station. A request was made in the letter to direct the Police Station to provide constables for the protection of the authorised officer of the Bank in discharging his official duties under the Act. This was followed by a letter dated 23 July 2010 to the officer incharge of the Malabar Hill Police Station. The letter also recorded that the Bank had authorised an enforcement agency to assist and take all necessary actions under the Act. At the foot of the letter, there is an endorsement to the effect that on 27 July 2010, police bandobast should be provided. After possession was taken, on 28 July 2010 a police complaint came to be lodged by the Manager Accounts and by the employees of the Petitioners. The complaint was to the following effect:

“We hereby place on record that at 3 pm today some nearly 20 people along with your API Mr. Machinder, Head Constable Mr. Patil and Constable Mr. Bhosle forcefully barged into the above mentioned address and started abusing and using the bad words. On enquiry they were telling that the State Bank of Indore have Court order to take forceful possession of the flat. We told the persons that the owner was not present and we have to take instructions. We also asked them to show the Court order to which they refused and then they started using bad language and started assaulting. Some of the unidentified person from Bank assaulted us, slapped us pushed us and they used the force and pushed us out of the house. The police was seeing this whole incident but they were standing still and did not take any action When we came to the police station the duty inspector has refused to take our complaint of physical assault and forcefully taking the possession of flat without the due of process of law.”

19 The Tribunal came to the conclusion that the Bank had taken forcible possession of the property without seeking recourse to an order of the Chief Metropolitan Magistrate under Section 14. Now, under Section 14, where the possession of any secured asset is required to be taken by the secured creditor, the secured creditor may make request in writing to the Chief Metropolitan Magistrate or the District Magistrate concerned to take possession. Thereupon, the Chief Metropolitan Magistrate or the District Magistrate is empowered to take possession of the asset and documents relating thereto and to forward them to the secured creditor. Under subsection (2) the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. Section 14 of the Act is an enabling provision under which the secured creditor is empowered to seek recourse to the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate for the purpose of taking possession. Though section 14 is an enabling provision, it will be wholly impermissible for a secured creditor, despite the provisions of Section 14, to take the law into his own hands and to forcibly evict a borrower from the secured asset. Our legal system is governed by the rule of law. If the borrower hands over possession voluntarily to the secured creditor in pursuance of a notice under Section 13(4), it would be open to the secured creditor to take possession. But, if possession is not voluntarily handed over, the secured creditor cannot take the law into his own hands and secure vacant possession by taking recourse to the police machinery. In such an event, the only remedy that is available is to seek an appropriate order from the Chief Metropolitan Magistrate, or as the case may be, the District Magistrate. Parliament has specifically authorised in subsection (2) those authorities to take or cause to be taken such steps and use or caused to be used such force as may be necessary. Authorisation of the use of force for taking possession is therefore a matter which lies in the jurisdiction and power of the authorities prescribed by Section 14. No secured creditor can by seeking assistance of police machinery unilaterally carry out the eviction of the borrower and take over forcible possession of the secured asset.

20 Having said this, it is clear from the record, that the Debt Recovery Tribunal did, as a matter of fact enter a finding of fact that possession was forcibly taken over by a secured creditor in this case. However, the Tribunal clarified that it was not resting its decision on that finding, since quite independently the Tribunal had come to the conclusion that the notice of possession and the sale notice were invalid. When an Appeal was carried by the secured creditor, the Appellate Tribunal reversed the finding of fact of the Tribunal on issues pertaining to the service and delivery of the possession notice under Rule 8(1) and the publication of the possession notice in the newspaper under Rule 8(2). The Appellate Tribunal did not consider the correctness of the finding which was arrived at by the Tribunal that forcible possession was taken by the secured creditor.

21 Whether forcible possession was taken by the secured creditor is essentially a question of fact to be determined on the basis of the material on the record. We are of the view that having regard to the parameters of the jurisdiction under Article 226 of the Constitution, it would only be appropriate and proper if that question is left to be decided by the Appellate Tribunal which has a fact finding jurisdiction. There being no finding of the Appellate Tribunal in that regard, we consider it appropriate and proper to remit the proceeding back to the Appellate Tribunal only on this aspect.

14 May 2011

In a recent decision [B. Premanand v. Mohan Koikal] the Supreme Court has explained the literal rule of interpretation of statutes. Governing the interpretation of statutes, the literal rule is the often invoked rule pressed into action to ascertain the legislative intention behind the framing of the enactment. The rule governs and regulates the meaning of the law in as much as the rule provides that the meaning has to be ascertained from the text of the law itself.

The Court explained the concept in the following terms;

In our opinion, Rule 27(c) of the Rules is plain and clear. Hence, the literal rule of interpretation will apply to it. No doubt, equity may be in favour of the respondents because they were selected earlier, but as observed earlier, if there is a conflict between equity and the law, it is the law which must prevail. The law, which is contained in Rule 27(c), is clearly in favour of the appellants.

Hence, we cannot accept the submission of the learned senior counsel for the private respondents. The language of Rule 27(c) of the Rules is clear and hence we have to follow that language.

"In construing a statutory provision the first and foremost rule of construction is the literaly construction. All that the Court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is clear, the Court need not call into aid the other rules of construction of statutes. The other rules of construction are called into aid only when the legislative intent is not clear."

It may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule, vide Swedish Match AB vs. Securities and Exchange Board, India, AIR 2004 SC 4219. As held in Prakash Nath Khanna vs. C.I.T. 2004 (9) SCC 686, the language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect or an omission in the words used by the legislature, the Court cannot correct or make up the deficiency, vide Delhi Financial Corporation vs. Rajiv Anand 2004 (11) SCC 625. Where the legislative intent is clear from the language, the Court should give effect to it, vide Government of Andhra Pradesh vs. Road Rollers Owners Welfare Association 2004(6) SCC 210, and the Court should not seek to amend the law in the garb of interpretation.

As stated by Justice Frankfurter of the U.S. Supreme Court (see 'Of Law & Men : Papers and Addresses of Felix Frankfurter') :

"Even within their area of choice the courts are not at large. They are confined by the nature and scope of the judicial function in its particular exercise in the field of interpretation. They are under the constraints imposed by the judicial function in our democratic society. As a matter of verbal recognition certainly, no one will gainsay that the function in construing a statute is to ascertain the meaning of words used by the legislature. To go beyond it is to usurp a power which our democracy has lodged in its elected legislature. The great judges have constantly admonished their brethren of the need for discipline in observing the limitations. A judge must not rewrite a statute, neither to enlarge nor to contract it. Whatever temptations the statesmanship of policy-making might wisely suggest, construction must eschew interpolation and evisceration. He must not read in by way of creation. He must not read out except to avoid patent nonsense or internal contradiction."

" 'To adhere as closely as possible to the literal meaning of the words used, is a cardinal rule from which if we depart we launch into a sea of difficulties which it is not easy to fathom."

In other words, once we depart from the literal rule, then any number of interpretations can be put to a statutory provision, each Judge having a free play to put his own interpretation as he likes. This would be destructive of judicial discipline, and also the basic principle in a democracy that it is not for the Judge to legislate as that is the task of the elected representatives of the people. Even if the literal interpretation results in hardship or inconvenience, it has to be followed (see G.P. Singh's Principles of Statutory Interpretations, 9th Edn. pp 45-49). Hence departure from the literal rule should only be done in very rare cases, and ordinarily there should be judicial restraint in this connection.

As the Privy Council observed (per Viscount Simonds, L.C.):

"Again and again, this Board has insisted that in construing enacted words we are not concerned with the policy involved or with the results, injurious or otherwise, which may follow from giving effect to the language used."(see Emperor v. Benoarilal Sarma, AIR 1945 PC 48, pg. 53).

As observed by this Court in CIT vs. Keshab Chandra Mandal, AIR 1950 SC 265:

"Hardship or inconvenience cannot alter the meaning of the language employed by the Legislature if such meaning is clear on the face of the statute".

Where the words are unequivocal, there is no scope for importing any rule of interpretation vide Pandian Chemicals Ltd. vs. C.I.T. 2003(5) SCC 590. It is only where the provisions of a statute are ambiguous that the Court can depart from a literal or strict construction vide Narsiruddin vs. Sita Ram Agarwal AIR 2003 SC 1543. Where the words of a statute are plain and unambiguous effect must be given to them vide Bhaiji vs. Sub-Divisional Officer, Thandla 2003(1) SCC 692. No doubt in some exceptional cases departure can be made from the literal rule of the interpretation, e.g. by adopting a purposive construction, Heydon's mischief rule, etc. but that should only be done in very exceptional cases. Ordinarily, it is not proper for the Court to depart from the literal rule as that would really be amending the law in the garb of interpretation, which is not permissible vide J.P. Bansal vs. State of Rajasthan & Anr. AIR 2003 SC 1405, State of Jharkhand & Anr. vs. Govind Singh JT 2004(10) SC 349 etc.. It is for the legislature to amend the law and not the Court vide State of Jharkhand & Anr. vs. Govind Singh JT 2004(10) SC 349.

"It is a well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent."

Where the language is clear, the intention of the legislature has to be gathered from the language used vide Grasim Industries Limited vs. Collector of Customs 2002 (4) SCC 297 and Union of India vs. Hamsoli Devi 2002 (7) SCC 273.

In Union of India and another vs. Hansoli Devi and others 2002(7)SCC (vide para 9), this Court observed :

"It is a cardinal principle of construction of a statute that when the language of the statute is plain and unambiguous, then the court must give effect to the words used in the statute and it would not be open to the courts to adopt a hypothetical construction on the grounds that such construction is more consistent with the alleged object and policy of the Act."

The function of the Court is only to expound the law and not to legislate vide District Mining Officer vs. Tata Iron and Steel Company 2002 (7) SCC 358. If we accept the interpretation canvassed by the learned counsel for the private respondents, we will really be legislating because in the guise of interpretation we will be really amending Rule 27(c) of the Rules.

In Gurudevdatta VKSSS Maryadit vs. State of Maharashtra AIR 2001 SC 1980, this Court observed :

"It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The Courts are adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute".

The same view has been taken by this Court in S. Mehta vs. State of Maharashtra 2001 (8) SCC 257 (vide para 34) and Patangrao Kaddam vs. Prithviraj Sajirao Yadav Deshmugh AIR 2001 SC 1121.

The literal rule of interpretation really means that there should be no interpretation. In other words, we should read the statute as it is, without distorting or twisting its language.

We may mention here that the literal rule of interpretation is not only followed by Judges and lawyers, but it is also followed by the lay man in his ordinary life. To give an illustration, if a person says "this is a pencil", then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean. In this connection, we may also refer to the Mimansa Rules of Interpretation which were our traditional principles of interpretation used for thousand of years by our jurists. It is deeply regrettable that in our law courts today these principles are not cited. Today, our so called educated people are largely ignorant about the great intellectual achievements of our ancestors, and the intellectual treasury which they have bequeathed to us.

The Mimansa Rules of Interpretation are one of these great achievements, but regrettably they are hardly ever used in our law courts. It may be mentioned that it is not stated anywhere in the Constitution of India that only Maxwell's Principles of Interpretation can be utilised. We can utilise any system of interpretation which can help to resolve a difficulty. Principles of interpretation are not principles of law but are only a methodology for explaining the meaning of words used in a text. There is no reason why we should not use Mimansa Principles of Interpretation in appropriate occasions.

In Mimansa, the literal rule of interpretation is known as the 'Shruti' or Abhida' Principle. This is illustrated by the Garhapatya nyaya (In Mimansa Maxims are known as nyayas). There is the vedic verse: “Aindrya garhapatyam upatishthate”, which means “By the Mantra addressed to Indra establish the household fire.” This verse can possibly have several meanings viz. (1) worship Indra (2) worship Garhapatya (the household fire) (3) worship both, or (4) worship either.

However, since the word 'Garhapatyam' is in the objective case, the verse has only one meaning, that is, 'worship Garhapatya'. The word 'Aindrya' means 'by Indra', and hence the verse means that by verses dedicated to Indra one should worship Garhapatya. The word 'Aindrya' in this verse is a Linga, (in Mimansa Linga means the suggestive power of a word), while the words 'Garhapatyam Upatishthate' are the Shruti. According to the Mimansa principles, the Shruti (literal meaning) will prevail over the Linga (suggestive power).

It is not necessary to go into details, but reference can be made to the Book 'Mimansa Rules of Interpretation' by K.L.Sarkar which is a collection of Tagore Law Lectures delivered by him in 1909. According to the Mimansa Principles, the Sruti Principle or literal rule of interpretation will prevail over all other principles, e.g., Linga, Vakya, Prakarana, Sthana, Samakhya etc.

Having found that the deportation of an Indian citizen mid-way on his outward journey was on basis of vague and unsubstantied allegations, the Delhi High Court in a recent decision in Balwinder Singh v. Union of India imposed costs on the Ministry while also directing the allegations against the citizen to be set-aside. Being of the view that the citizen had "needlessly suffered hardship and trauma due to the arbitrary acts" of the Government, the High Court sternly noted the action to be violative of the life and personal liberty of the citizen, guaranteed by the Constitution to all citizens.

The High Court inter alia observed as under;

15. The conduct of the Respondents in the present case displays utter callousness in dealing with the life and liberty of the citizen. The Petitioner had valid travel papers and work permit for employment in Spain. He had already commenced his employment in Spain. He was returning to Spain to resume his employment after briefly visiting India during vacations. During the stop-over of his flight from New Delhi to Spain at Brussels, he was stopped and subsequently deported to New Delhi on 22nd February 2010. He was not permitted to travel by the BID, on the ground that he was an „imposter‟ and that he held a “fraudulent” visa and fraudulent residence permit. It is now clear that this determination by the BID, which formed the basis of the Petitioner‟s deportation, was wholly erroneous.

16. What is unfortunate is that when the Petitioner arrived in New Delhi, pursuant to such deportation no effort was made by the airport immigration authorities in New Delhi to make any proper inquiry. A copy of the seizure report of the Indian Immigration Control at the IGI Airport, (which is at Annexure P-5 to the petition), gives the reasons for seizure of the Petitioner‟s passport and travel documents as under: “The residential permit of Spain seems to be doubtful.”

17. The affidavits and documents placed on record in this petition by the FRRO shows that there was no basis for the above „doubt‟ as to genuineness of the Petitioner‟s residence permit. No attempt was made to verify this from the Embassy of Spain. Instead, the FRRO straightway sent the papers to the police and an FIR was registered against the Petitioner under Sections 419/420/468/471 IPC. The present petition was filed on 17th August 2010. Notice was issued on 20th August 2010 and accepted by counsel for the Respondents on that date. Yet till 10th January 2011 no attempt was made by the FRRO to write to the Embassy of Spain to verify the genuineness of the Petitioner‟s residence permit. The Police on its part also made no effort to make inquiries with the Embassy of Spain till 22nd February 2011. Within ten days of such inquiry, Embassy of Spain confirmed the genuineness of the Petitioner‟s documents. This then led to the immediate closure of the criminal case. Had this inquiry been made soon after the deportation of the Petitioner, the criminal case would have been unnecessary. He may have been able to immediately return to Spain to resume his employment. On account of the utter negligence and callousness on the part of the Respondents, the Petitioner had to needlessly undergo the trauma of a false criminal case against him for over one year and suffer the deprivation of his passport and travel documents. He was unable to return to Spain to resume his employment. The direct consequence of the arbitrary action of the Respondents has been irreversible loss of employment and earning of the Petitioner, apart from the mental trauma undergone as a result of the false criminal case.

18. This Court expresses its displeasure with the manner in which the Respondents have violated the life and liberty of the Petitioner. There has been an undoubted violation of the Petitioner's fundamental rights under Article 14 and Article 21 of the Constitution. The Petitioner has needlessly suffered hardship and trauma due to the arbitrary acts of the Respondents. In the circumstances, this Court considers it appropriate to direct that Respondents shall compensate the Petitioner in the sum of Rs. 50,000/- which will be paid by the Union of India in the Ministry of External Affairs to him within a period of four weeks from today. The Respondent Union of India will also pay to the Petitioner litigation expenses of Rs. 5,000/- within a period of four weeks from today. The Respondents will immediately return to the Petitioner, if not already done, all the documents seized from him.

19. It is clarified that it is open to the Petitioner to institute other appropriate proceedings in accordance with law for recovery of damages for the loss and hardship suffered by him. The passport of the Petitioner as stated by him is valid upto 16th January 2016. However, if the Petitioner requires any re-validation of the passport or new passport, upon his making application in that regard the needful be done by the RPO, Jalandhar, Respondent No. 3, expeditiously and in any event not later than four weeks from the date of making of such application.

12 May 2011

Holding that "in the absence of a specific provision that permits the levy of stamp duty on the increase in authorized share capital", it is not open to the Government "to insist upon the Petitioner having to pay stamp duty for the increased authorized share capital" the Delhi High Court in a recent decision in S.E. Investments Ltd. v. Union of India declared that no stamp-duty was payable on increase in share-capital of a company.

The High Court declared the law in the following terms;

10. Having considered the above submissions, this Court is of the view that the Petitioner ought to succeed. The order dated 11th August 2010 of the Collector of Stamps proceeds on the footing that under Article 10 (a) and (b) of Schedule IA of the Act, stamp duty chargeable on the authorized capital of the company is 0.15% of the authorized share capital with a monetary ceiling of Rs. 25 lakhs. There is no provision for charging stamp duty on “increase” in the authorised share capital. Nevertheless Respondent No.4 has proceeded to determine the stamp duty payable on the authorized share capital as Rs. 18,75,000/-. A statute authorizing the levy of stamp duty is in the nature of a fiscal statute inasmuch as it provides for involuntary exaction of money. This cannot be done except by the authority of law. The provisions of a fiscal statute admit of strict construction. In the absence of an express provision in the Act permitting levy of stamp duty on the increase in authorised share capital, it is not possible to legally sustain the impugned demand. The legislatures in Rajasthan and Madhya Pradesh and a few other States have acknowledged the need to have specific provisions and have accordingly amended the Schedule IA of the Act providing for levy of stamp duty on the increase in the authorized share capital.

11. The decisions cited by the learned counsel for the Respondents are not relevant in the facts and circumstances of the present case. One is in the context of the Delhi Rent Control Act, 1958 and the other regarding service rules concerning allotment of government accommodation. On the other hand a Constitution Bench of the Supreme Court, in AV Fernandez v. State of Kerala AIR 1957 SC 657, explained the law relating to interpretation of fiscal statutes as under: (AIR @ 661)

“(I)n construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.”

“The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.”

13. The Articles of Association and the Memorandum of Association of a company are required to be submitted at the time of registration of the company. At that stage stamp duty is payable in terms of either Article 10 or Article 39 of the Schedule IA to the Act. Neither Article 10 nor Article 39 refers to 'increase' in the authorized share capital as a basis for levy of stamp duty. In the absence of a specific provision that permits the levy of stamp duty on the increase in authorized share capital, it would not be open to the Respondents to insist upon the Petitioner having to pay stamp duty for the increased authorized share capital. The fact that the Petitioner earlier paid stamp duty when the authorized share capital was increased to Rs. 8.5 crores cannot act as an estoppel against the Petitioner. Also, the mere fact that the website of the ROC indicates that stamp duty shall be 0.5% of amount on increase in the authorized share capital does not lend a legal basis for such levy, in the absence of any amendment to the Act to that effect.

14. For the aforementioned reasons, this Court is unable to approve of the decision dated 11th August 2010 of Respondent No. 4. It is directed that the ROC will now proceed to accept the Petitioner's Form 5 and record the increased authorized share capital without insisting on the Petitioner paying stamp duty thereon. This will however not enable the Petitioner to claim refund of any stamp duty paid earlier by it for increase in authorized share capital.

10 May 2011

Dismissing the public interest litigation challenging the constitution of the Lok Pal Committee Bill the Delhi High Court in a recent decision declared that there was no public interest shown to the involved in the challenge and thus the petition was dismissed at the admission stage itself. The decision, authored by the Chief Justice of the Delhi High Court himself, dismissed the petition filed by Hemant Baburao Patil, the President of National Anti Corruption Public Power in the following terms;

6. Having heard learned counsel for the parties, it is manifest that members of the Committee do not hold public office and, hence, there cannot be any eligibility criteria. Therefore, the concept of quo warranto is not applicable. A drafting committee has been constituted which pertains to a pre-enactment stage. We have our grave doubt whether the same can be scrutinized while exercising the power of judicial review. The Constitution casts an obligation on the part of the Court while exercising power of judicial review to test the legislation in the constitutional backdrop, but not at a stage when the drafting of a Bill is in process. It is a resolution passed by the Ministry of Law and Justice for drafting of a Bill. It can be treated as an internal matter of the Executive and exclusively in the domain of Executive. The suitability of the persons, we are disposed to think, cannot be a matter of judicial review, more so in a matter of the present nature.

7. Resultantly, we do not perceive any public interest involved in this writ petition and, accordingly, there is no need to call for any kind of counter affidavit/return from the respondents. The writ petition does not deserve to be entertained for the purpose of adjudication and, accordingly, the same stands dismissed.

Holding that detention at check-post by the local authorities and demanding of substantially high amounts from the holder of goods was illegal and violative of law, the Punjab and Haryana High Court in a recent decision directed release of the goods while also imposing cost on the government department. The High Court declared that "acting on one technicality or the other with a view to harass and abuse the power of detention of vehicles and goods is not consistent with the fair procedure required to be followed to justify interference with the right of life and liberty of a citizen under Article 21 of the Constitution".

The High Court inter alia observed as under;

6. Learned counsel for the petitioner submits that the action of detaining the goods at the Check Post was arbitrary and malafide. There was no attempt at evasion and even if valuation of the respondents is accepted and it is to be presumed that there was attempt at evasion of tax of about Rs. 27,500/-, there was no justification for demanding Rs. 8 lacs for release of goods. It is further pointed out that the action is highhanded. At best, the Learned counsel for the petitioner submits that the petitioner could be required to furnish bond of Rs. 27,500/- or the information could have been sent to the concerned authority so that the alleged loss of tax could be recovered from the concerned dealer. Reliance is placed on judgment of this Court in Xcell Automation v. Government of Punjab and another [2007] 005 VST 0308 to the effect that power at the Check Post cannot be abused and detention cannot be arbitrarily continued. Even if there was an allegation of attempt at evasion, the goods must be released on reasonable conditions. No justification has been shown for demand of Rs. 8 lacs for release of goods.

7. We are of the view that the present case is an instance of abuse of authority by the concerned detaining authority at the Check Post. No basis for suspicion of undervaluation has been shown. Even if it is assumed that there was alleged under-valuation and attempt at evasion of tax to the extent of Rs 27,500/-, continued detention of goods and the vehicles for more than a week resulting in loss of more than the amount of alleged evasion of tax cannot be ignored. The detaining authority is expected to act responsibly and pass appropriate order to the extent required for checking the evasion of tax. This has not been done. Continued detention may be permissible only if there is failure on the part of the owner or the transporter to secure the allegedly evaded tax or the amount of penalty which may be entailed under the statutory provisions. Acting on one technicality or the other with a view to harass and abuse the power of detention of vehicles and goods is not consistent with the fair procedure required to be followed to justify interference with the right of life and liberty of a citizen under Article 21 of the Constitution. Department of the State must ensure that drastic power of detaining vehicles and goods at the Check Post is not abused. We find that abuse is taking place frequently without any let or hindrance and the head of the concerned department has failed to check the abuse which calls for interference by this Court.

8. Learned counsel for the petitioners has undertaken to furnish bank guarantee to the extent of Rs. 50,000/- which will take care of the alleged evasion of tax and on such bank guarantee being furnished, the goods and the vehicles will stand released forthwith. The Bank guarantee will be to indemnify the State of the tax loss, if any determined in appropriate proceedings within six months from today. On expiry of six months, the Bank guarantee will stand discharged subject to tax liability being discharged. It is also made clear that this order will not debar any legal proceedings being taken in the matter, as may be permissible. The detaining authority will pay costs quantified at Rs. 50,000/- in all the three cases together to be deposited with the High Court Legal Aid Committee within one month from today. The amount of costs may be recovered from the person who is responsible for acting illegally. The State will also be at liberty to initiate Learned counsel for the petitioners has undertaken to disciplinary proceedings against persons responsible for the misconduct.

While the world is celebrating that an ostensible symbol of international terrorism, Osama Bin Laden, has been captured and killed, the trail of his capture has already initiated the debate on 'State Sovereignty' and whether terrorism considerations can out-weigh the regard and scope of international state boundaries. In his paper titled Pakistan's Sovereignty and the Killing of Osama Bin Laden, Ashely S. Deeks has provided glaring insights over the issue of State Sovereignty in as much as a new theory is being developed seemingly to justify the breach of state boundaries.

Published under the aegis of American Society of International Law (ASIL), the paper concludes as under;

The facts and politics in this case make it unlikely that Pakistan’s defense of its sovereignty will find significant international support. Nevertheless, it would be useful as a matter of international law for states to agree that the “unwilling or unable” test is the correct test for situations such as the U.S. raid against Bin Laden in Pakistan and to provide additional content to that test. Doing so potentially could serve international law’s interests by minimizing legal disagreements at times when political and factual disagreements are running high.

An interesting reading for those following developments in international law.

13 Apr 2011

Witnesses form the backbone of a legal system. They are the assurances of the trust of the citizens in the justice dispensation system. However the quality of witness is also essential to be maintained, on the parallel lines, or else the correctness of decisions cannot be warranted. In this context we bring to you the law relating to child witnesses. In a recent decision [State of M.P. v. Ramesh] the Supreme Court took note of its earlier decisions to explain the law relating to evidentiary value of the statements of child witnesses.

The Court inter alia explained the law in the following terms;

6. In Rameshwar S/o Kalyan Singh v. The State of Rajasthan, AIR 1952 SC 54, this Court examined the provisions of Section 5 of Indian Oaths Act, 1873 and Section 118 of Evidence Act, 1872 and held that every witness is competent to depose unless the court considers that he is prevented from understanding the question put to him, or from giving rational answers by reason of tender age, extreme old age, disease whether of body or mind or any other cause of the same kind. There is always competency in fact unless the Court considers otherwise. The Court further held as under:

“…..It is desirable that Judges and magistrates should always record their opinion that the child understands the duty of speaking the truth and state why they think that, otherwise the credibility of the witness may be seriously affected, so much so, that in some cases it may be necessary to reject the evidence altogether. But whether the Magistrate or Judge really was of that opinion can, I think, be gathered from the circumstances when there is no formal certificate….”

7. In Mangoo & Anr. v. State of Madhya Pradesh, AIR 1995 SC 959, this Court while dealing with the evidence of a child witness observed that there was always scope to tutor the child, however, it cannot alone be a ground to come to the conclusion that the child witness must have been tutored. The Court must determine as to whether the child has been tutored or not. It can be ascertained by examining the evidence and from the contents thereof as to whether there are any traces of tutoring.

8. In Panchhi & Ors. v. State of U.P., AIR 1998 SC 2726, this Court while placing reliance upon a large number of its earlier judgments observed that the testimony of a child witness must find adequate corroboration before it is relied on. However, it is more a rule of practical wisdom than of law. It cannot be held that “the evidence of a child witness would always stand irretrievably stigmatized. It is not the law that if a witness is a child, his evidence shall be rejected, even if it is found reliable. The law is that evidence of a child witness must be evaluated more carefully and with greater circumspection because a child is susceptible to be swayed by what others tell him and thus a child witness is an easy prey to tutoring.”

9. In Nivrutti Pandurang Kokate & Ors. v. State of Maharashtra, AIR 2008 SC 1460, this Court dealing with the child witness has observed as under:

“The decision on the question whether the child witness has sufficient intelligence primarily rests with the trial Judge who notices his manners, his apparent possession or lack of intelligence, and the said Judge may resort to any examination which will tend to disclose his capacity and intelligence as well as his understanding of the obligation of an oath. The decision of the trial court may, however, be disturbed by the higher court if from what is preserved in the records, it is clear that his conclusion was erroneous. This precaution is necessary because child witnesses are amenable to tutoring and often live in a world of make-believe. Though it is an established principle that child witnesses are dangerous witnesses as they are pliable and liable to be influenced easily, shaped and moulded, but it is also an accepted norm that if after careful scrutiny of their evidence the court comes to the conclusion that there is an impress of truth in it, there is no obstacle in the way of accepting the evidence of a child witness.”

10. The evidence of a child must reveal that he was able to discern between right and wrong and the court may find out from the crossexamination whether the defence lawyer could bring anything to indicate that the child could not differentiate between right and wrong. The court may ascertain his suitability as a witness by putting questions to him and even if no such questions had been put, it may be gathered from his evidence as to whether he fully understood the implications of what he was saying and whether he stood discredited in facing a stiff cross-examination. A child witness must be able to understand the sanctity of giving evidence on a oath and the import of the questions that were being put to him. (Vide: Himmat Sukhadeo Wahurwagh & Ors. v. State of Maharashtra, AIR 2009 SC 2292).

11. In State of U.P. v. Krishna Master & Ors., AIR 2010 SC 3071, this Court held that there is no principle of law that it is inconceivable that a child of tender age would not be able to recapitulate the facts in his memory. A child is always receptive to abnormal events which take place in his life and would never forget those events for the rest of his life. The child may be able to recapitulate carefully and exactly when asked about the same in the future. In case the child explains the relevant events of the crime without improvements or embellishments, and the same inspire confidence of the Court, his deposition does not require any corroboration whatsoever. The child at a tender age is incapable of having any malice or ill will against any person. Therefore, there must be something on record to satisfy the Court that something had gone wrong between the date of incident and recording evidence of the child witness due to which the witness wanted to implicate the accused falsely in a case of a serious nature.

12. Part of the statement of a child witness, even if tutored, can be relied upon, if the tutored part can be separated from untutored part, in case such remaining untutored part inspires confidence. In such an eventuality the untutored part can be believed or at least taken into consideration for the purpose of corroboration as in the case of a hostile witness. (Vide: Gagan Kanojia & Anr. v. State of Punjab, (2006) 13 SCC 516).

13. In view of the above, the law on the issue can be summarized to the effect that the deposition of a child witness may require corroboration, but in case his deposition inspires the confidence of the court and there is no embellishment or improvement therein, the court may rely upon his evidence. The evidence of a child witness must be evaluated more carefully with greater circumspection because he is susceptible to tutoring. Only in case there is evidence on record to show that a child has been tutored, the Court can reject his statement partly or fully. However, an inference as to whether child has been tutored or not, can be drawn from the contents of his deposition.

21 Mar 2011

In this post we are bringing an expert article relating to Intellectual Property Laws on the topic 'Local Working Requirement of a Patent under the Indian Patent Act, 1970' which has been authored by a close friend and patron of this blog, Pavit Singh Katoch. Pavit holds a Masters Degree in Law with specialization in Intellectual Property Law from Queen Mary (University of London) and is currently associated with M/s Vaish Associates, Delhi. The views are personal. He can be contacted at affable [dot] sonu [at] gmail [dot] com)

LOCAL WORKING REQUIREMENT OF A PATENT UNDER THE INDIAN PATENT ACT, 1970

Introduction

The intellectual property system is based on the utilitarian principle that it promotes the progress of science and useful arts. Patent is the strongest right in the intellectual property system as it gives an exclusive right to make, sell or use the subject matter of the Patent through its term of protection. Patent means open and is derived from the term “Letters Patent”(Litterae patentes in Latin), which simply means open letters. These were the official documents which granted certain privileges, rights, ranks or titles to the holder of the document. Patents were originally granted to promote transfer of technology, especially the domestic application of foreign technologies and dissemination of new technologies in the country granting patent. Local Working requirement and Compulsory licenses enable the Countries granting patent to force foreign patentees to transfer technology in these countries.

The actual growth of science and technology in a country depends upon the working of the patents rather than on the number of patents granted in such a country. This article deals with the issue of whether the importation of patented product would satisfy the local working requirement, especially in light of TRIPS, Paris Convention and (Indian) Patent Act, 1970. This article also seeks to highlight features of India’s legal requirements with regard to the local working of patents, particularly in the context of notification dated December 24, 2009, issued by the Controller General of Patents, Designs and Trademarks of India wherein it is mandatory for all the Patentees or licensees of a granted Patent to submit the information (as required under Form 27), regarding local working of the patent in India. The notification dated December 24, 2009 can be accessed here.

Definition of Local Requirement

“Local working” is also known as commercial working of patent in a country. It refers to the condition imposed on patentees or licensees that the patented product or process must be used or produced in the patent granting country. This condition has the effect of forcing foreign patentees to situate production facilities within the patent granting country.

Trade-Related Aspects of Intellectual Property Rights

Article 27 (1) of the TRIPS states that the patents shall be available and patent rights enjoyable without any discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. It is argued that Article 27 (1) of the TRIPS precludes the member countries from making any laws mandating the local working of the patents. However, I am of the opinion that the Article 27 (1) cannot be interpreted to mean that working requirements can be fully satisfied by importation alone.

It is important to read Article 27 (1) of the TRIPS with Articles 2, 7, 8 and 30 of the TRIPS to understand the full purport of the TRIPS agreement.Article 7 of the TRIPS sets out the objectives of the TRIPS agreement, stating that the protection and enforcement of intellectual property rights should result in the promotion of technological innovation and technology transfer. It further states that such technology transfer and dissemination should be for the mutual advantage of producers and users in a manner beneficial to their social and economic welfare, and should create a balance of rights and obligations. It is clear that Article 7 recognises both the private interest of the Patent holder and public interest in transfer or dissemination of technology and creation of balance of rights and obligations.

Article 8 (1) of the TRIPS allow member countries to adopt measures necessary to promote the public interest in sectors of vital importance to their socio-economic and technological development. Similarly, Article 8 (2) of the TRIPS provides member countries to adopt measures that prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. TRIPS also provides for exceptions to exclusive rights under Article 30 of the TRIPS Agreement, that allows member states to provide limited exceptions to exclusive rights conferred by patents. However, such exceptions should not unreasonably conflict with a normal exploitation of the patent and should not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

From the above, it is clear that Article 7, 8 and 30 of the TRIPS restrict the operation of Article 27 (1) of the TRIPS. However, in order to clear any ambiguity towards the interpretation of Article 27 (1) of the TRIPS, Article 2 of the TRIPS becomes imperative as it makes Paris convention as part of TRIPS and provides for compliance of Paris Convention with respect to all member states. It is important that interpretations of articles in the Paris Convention should be used to clarify any ambiguities that exist in TRIPS articles regarding similar subject matter.

Paris Convention for the Protection of Industrial Property, 1883

The Paris Convention, signed in Paris, France, on March 20, 1883, was one of the first intellectual property treaties.Article 5(A) of the Paris Convention deals with the working of patent and grant of compulsory licenses. It provides that importation of the patented articles should not result in forfeiture of the patent.This provision is similar to Article 27 (1) of the TRIPS agreement providing for import of patented products.

Article 5(A) (2) provides that each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work. Article 8 of the TRIPS also talks about the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

However, Article 5(A) further provides that the Convention Countries have the right to make laws providing for the grant of compulsory licenses in case of non-working of a patent.It is important to note that the Paris Convention clearly stipulates that a patent cannot be revoked unless the grant of compulsory licenses was not sufficient to work the patent, whereby making the grant of compulsory license as a precondition to the revocation of patent on grounds of non-working. Article 5(A) (3) of the Paris Convention also states that no proceedings for the forfeiture or revocation of a patent may be instituted before the expiration of two years from the grant of the first compulsory license.

Article 5(A) (4) of the Paris Convention states that a compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of 4 years from the date of filing of the patent application or 3 years from the date of the grant of the patent, whichever period expires last.It further provides that such an application shall be refused if the patentee justifies his inaction by legitimate reasons.

It is fair to conclude that the legislation requiring local working of patents would not be in contravention of TRIPS in light of articles 7, 8 and 30 and explicit reference of Paris Convention under Article 2 of TRIPS. However, this should not mean that working requirement can only be satisfied by local production only; the importing of the patented subject matter would have to be allowed.

Local working of patents under the Patent Act, 1970

Indian Patent Act, 1970 is TRIPS complaint and has used the flexibilities under the TRIPS agreement with respect to provisions relating to local working requirement of the Patent.The Act imposes an obligation on the patentee and patent licensees to disclose information relating to the working of their patents in India.

The Controller General of Patents has by notification dated December 24, 2009, made it mandatory for all the Patentees or Patent licensees to submit the information regarding commercial working of the patent in India. It is pertinent to note that this requirement of submission of information about commercial working of patent under Section 146 is not new, but is only insisted now by the Controller General of patents. This information was sought by the Controller General under Section 146 of Indian Patents Act. The information was to be submitted in the Indian Patent Office by 31st of March 2010. The Controller General of Patents has also warned that any failure to comply with the order will attract punishment.

Section 146(1) of Indian Patents Act provides that the Controller has the power to call for information or periodical statement as to the extent to which the patented invention has been commercially worked in India from a patentee or patent licensees. The patentee or the patent licensees is required to furnish such information to the Controller within two months from the date of such notice or such further period as the Controller may allow.

Further, Section 146(2) of the Act and Rule 131(2) of The Patent Rules 2003 provide that every patentee and patent licensee should furnish the details of working of the patented invention in Form 27 in respect of every calendar year within three months of the end of each year. A patentee or patent licensee can file such information for a given calendar year latest by 31 March of the following year. The following information is required to be submitted under Form-27:

Øwhether the invention has been worked;

Øif not worked, the reasons for not working the invention, and the steps being taken to work the invention;

Øif worked, quantum and value (in rupees) of the patented product:

·manufactured in India,

·imported from other countries, giving details of the countries concerned;

Ølicenses and sub-licenses granted during the year;

ØWhether the public requirement has been met, at a reasonable price either partly, adequately or to the fullest extent.

It is interesting to note that even if the patent is commercially not worked in India, the patentee or patent licensee needs to explain the reasons for not working and steps being taken for working of the invention. Similarly, in case of importation of patented products, the country wise details should be given from where it is being imported.

The Patent Act has also provided for punitive actions for non compliance like not filling the form-27 or providing false information. Section 122 (1) of Indian Patents Act provides a fine of rupees ten lakh (Rupees one million), if any person refuses or fails to furnish the information under Form-27. Further, Section 122(2) has stricter provisions for false information. Section 122(2) provides that if any person furnishes information or statement which is false, and which he either knows or has reason to believe to be false or does not believe to be true, he shall be punishable with imprisonment which may extend to six months, or with fine, or with both.

The information sought under Section 146 is to keep the Controller General updated about the commercial status of a patent. Non-working of a patent is one of the core grounds for seeking the grant of a compulsory license under India's patent law. The availability of such data could potentially open up opportunities for interested parties that may seek the grant of compulsory licenses on account of non-working of patents, especially in sensitive areas like public health or national emergency. It also brings transparency in the working of patents in India.

Confidentiality of the information supplied to the patent office

Section 146(3) read with Rule 131(3) provide that the Controller may publish the information received by him under Form-27. This assumes significance as the information submitted is of the sensitive nature like the quantum and value of the patented product, country of import, number of licensees, etc. and it has been argued that such information should remain confidential. However, the Act does not provide the extent to which such information may be published.

Compulsory license and Revocation:

Compulsory licensing allows a government to license to a company, government agency or other party, the right to use a patent without the titleholder’s consent. A competent authority must grant the license to a designated person or company who is expected to compensate the titleholder by paying a determined remuneration. Different countries have adopted different standards from the grant of compulsory licenses. However, one of the most important uses of compulsory licenses is as a remedy for patent-holder abuses such as “non-working,” or “artificially created high prices” or “exclusive grant back”.

Section 84 (1) of the Patent Act, 1970 allows any interested person after expiry of 3 years from grant of patent, even though if he is a license under the patent, to make an application to the Controller for grant of compulsory license on patent on grounds, including “that the patented invention is not worked in the territory of India”. If the requirements specified under Section 84(1) were not fulfilled, the Controller may grant a compulsory license to any interested person for non-working of patent in India.

However, Section 84 (6) provides that the Controller shall take into account several factors like the nature of the invention, time elapsed, the measures taken by the patentee or patent licensee to use the invention, the ability and capacity of the applicant to work the invention to the public advantage, and the efforts made by the applicant in obtaining a voluntary license on reasonable terms from the patentee, while deciding such an application for compulsory license. While granting a compulsory license reasonable royalty is also paid to the patentee having regard to nature of Invention, its utility, expenses incurred in maintaining patent grant in India and other factors. However, in cases of national emergency, extreme urgency, public non-commercial use or anti-competitive practices, these should not be applicable.

Section 84 (1) of the Patent Act, 1970 enlists the various circumstances, which constitute "failure to meet the reasonable requirements’’, of public in respect of a patent:

i.Prejudice to an existing trade or industry or its development, or to establishment of any new trade or industry in India, or to the trade or industry of any person or class of persons trading or manufacturing in India, or

ii.Demand for the patented article not being met adequately or reasonably, or

iii.Failure to supply to or develop an export market for the patented articles made in India, or

iv.Prejudice to the establishment or development of commercial activities in India;

(b)Prejudice to the establishment or development of trade or industry in India due to restrictive conditions imposed by the patentee in articles not protected by the patent;

(c)Restrictive covenants like ‘exclusive grant back’, ‘prevention to challenges of validity’ or ‘coercive package licensing’ in a license for patented invention;

(d)Non-working of the patent in India on a commercial scale;

(e)Commercial working of the patented invention in India is hindered or prevented by import of the patented articles by patentee or patent licensee or any other person with patentee’s consent.

The grant of Compulsory license is generally for the remaining term of patent unless a shorter period looks reasonable to the Controller.

Revocation of Patent

The Controller can make an order to revoke a patent for non-working or if the reasonable requirements of the public are not still met after the grant of compulsory license. According to section 85 of the Patents Act where, in respect of a patent, a compulsory license has been granted, the Central Government or any person interested may, after the expiration of two years from the date of the order granting the first compulsory license, apply to the Controller for an order revoking the patent on the ground that the patented invention has not been worked in the territory of India or that reasonable requirements of the public with respect to the patented invention has not been satisfied or that the patented invention is not available to the public at a reasonably affordable price. It is important to note that such an application for revocation of patent should be decided by the Controller within one year.

The term “Working” or “Local working” has not been defined under the Act. However, Section 83 (a), 83 (b) and Section 85 (7) (e) refer to working of patent in India, and help in the interpretation of the term “working” in India.

Section 83 provides the general principles which are applicable to the working of patented inventions in India. This provision is akin to Article 7 and 8 of the TRIPS agreement.Section 83 (a) states that the patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay. Further, Section 83 (b) clearly states that the patents are not granted merely to enable the patentees or patent licensees to enjoy the monopoly for importation of the patented article. Section 83 (c) and Section 83 (f) also talk about promotion of technology innovation, technology transfer and prevention of abuse of patent rights to unreasonably restrain international transfer of technology. It is interesting to note that Section 83 of the Act is merely a guiding principle and is not binding. However, this provision helps in interpretation of local working requirement under the Indian Patent Act.

On the other hand, Section 85 (7) (d) states that reasonable requirement of the public are deemed to have not been met when the patented invention is not worked in the territory of India on a commercial scale to an adequate extent to as is reasonably practicable. Further, Section 85 (7) (e) states that the reasonable requirement of the public are deemed to have not been met when the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by the patentee or patent licensees.It is important to note that this provision does not bar importation of patented article as to constitute the working of patent in India. However, when such importation results in preventing or hindering the working of the product within India, it would be deemed that reasonable requirement of public is not met, which is a separate ground for grant of compulsory license.

It is interesting to note that the as per Para 18.2.6 (4) of Draft Manual of Patent Practice and Procedure, which is scheduled to be brought into force by the Indian Patent Office, an application for grant of compulsory license on ground of non-working will be assessed by reference to the facility available in India for working of such invention. It further states that the importing of patented invention is allowed. However, mere importation without exploring the possibility of manufacturing in India will be a factor in assessing such an application for grant of compulsory license.

In light of above discussion and Para 18.2.6 (4) of Draft Manual of Patent Practice and Procedure, it is safe to conclude that the importation of patented product would satisfy the local working requirement both under the TRIPS and (Indian) Patent Act, 1970. However, the patentee or patent licensee should first ensure that if such patented invention can be manufactured in India. It is only in exceptional cases, that the working is allowed through import and it is an exception and not a rule.

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